What Is Economics

What is economics? This is probably the question being answered by most economics teachers when they are giving their first lesson of any program. In general, economics is the study of the allocation of the resources to satisfy unlimited human wants. It is a subject that is in some ways a combination of a science and humanity.

It is a like a science subject because a lot of the theory in economics is usually based on general observations of human activity. Economists tend to generalize the general decisions made by human beings. For example, the Nobel Prize winning theory in economics, Game theory, introduced by John Nash arises through perception. He deduced such a theory at a gathering with his friends in a bar. He observed that if a group of boys try to approach another group of girls, it is very likely that all boys will go for the most gorgeous girl. No matter what, the best output is that only one boy can go on a date with the ‘best’ girl. For the boys who fail to impress the ‘best girl’ will go for the other ‘inferior girls’. However, it is likely that the ‘inferior girls’ will feel like being seen as substitutes of the ‘best girl’, as a result rejecting the guys. John Nash can see that it is not ideal for the entire group if all of boys just go for the ‘best girl’ because at the end of the day, only one pair of couples is formed. After this observation, he went straight back to his office to study the phenomenon deeply. As a result, he is able to come up with the astonishing Game Theory that if there were insufficient communication among parties, they would tend to come up with decisions that are not ideal to the society as a whole. The above is just an example where perception is playing an important role in the creation of economical models. Indeed, most economists learn the behavior of the market through their perception. With the information that they gathered through perception, they generalize and come up with various economical models. Since perception plays such a huge proportion in economical modeling, there are usually setbacks or assumptions involved in these models. These assumptions and setbacks are caused by perception. Knowing by perception is not a holistic and objective approach; therefore they are often needs for theories or models that are built upon to compensate the prejudices made by certain economists’ perception.

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